Winery demand indicates recovery

California wine grape growers are emerging this year from one the deepest economic troughs seen in recent years.

Prices are improving on the backs of thousands of acres pulled out over the past four years, including 100,000 in the San Joaquin Valley alone, and improved wine sales.

Allied Grape Growers Association president Nat DiBuduo told the cooperative annual meetings that the survivors are seeing all SJV wine grapes in demand at prices ranging from 50 percent to 100 percent higher than 2003.

Merlot, Chardonnay and White Zinfandel are strong throughout the SJV. The generics French Colombard., Barbera, Chenin Blanc, Grenache, Carignane and Ruby Cabernet are being sought at relatively good prices. The bottom of the wine grape ladder, Thompson Seedless is being bought for $200 a ton vs. $90 last year for concentrate, brandy and dry white wine.

“We at Allied currently have limited amounts of grapes available — a completely different story from the past four years,” DiBuduo said.

There is good demand for Merlot, Chardonnay and Petite in the northern interior. White Zinfandel is for now in stronger demand than Red Zinfandel. Syrah and Cabernet Sauvignon are finding homes at prices better than last year, but still lower than desired.

According to DiBuduo demand is good for North Coast Chardonnay and Merlot as well as better quality Cabernet Sauvignon.

Spot market interest

“It is still a little early for major grape acquisitions but we are seeing higher interest at spot market prices better than 2003 and in some cases multiple year contracts are being offered,” said the Allied president. “Cabernet Sauvignon continues to be the main variety that is currently in excess vs. demand in the North Coast.”

The Central Coast is surviving on existing term contracts for many of the grapes with some spot market activity on Chardonnay, Merlot and Pinot Noir, said DiBuduo. Currently the Cabernet Sauvignon and Syrah varieties are facing more marketing challenges but “that may change as the crop level is further determined closer to harvest and winery demands are better focused.”

Allied Grape Growers has grown from 171,000 tons marketed in 1999 to over 200,000 tons in three of the past four years. This year Allied will approach 230,000, about 6 percent of the total 2004 estimated statewide crush.

Allied provides grapes to more than 70 wineries and other outlets statewide. There are now more than 1,000 wineries in the state.

“Today we sit at a point where we may come into (supply-demand) balance soon statewide, and we have probably already hit that balance in the San Joaquin Valley,” said DiBuduo.

However, DiBuduo called for caution because there are still almost 50,000 acres coming into production in 2004 and 2005, without accounting for new plantings. The predominance of the non-bearing acres is in the Central and North Coast where there continues to be an imbalance of demand from the available supply, he noted.

“More grapes being pulled out of the SJV will not help the North and Central Coast growers,” he added.

Overall, however, there is good news in California's wine industry to be excited about.

Positive economics

Despite some of the most dismal years in history for growers, DiBuduo cited a study showing that the California wine industry has a positive economic impact of $45.4 billion in 2002, up 38 percent over the previous four years.

California wineries produced 3.12 billion 750 ml bottles, up 20 percent in those four years.

The California wine industry paid $5.6 billion in taxes.

Wine buying in supermarkets and drugstores is up 3 percent, compared to 1.5 percent for beer.

California is the world's fourth largest wine producer.

Vic Motto, author of the California Wine Economic Impact Report says that he bases the reasons for success in California on five factors:

Production of high quality wine.

Cultural trends are improving for wine consumption.

Growing affluence of the wine consumer.

Demographics.

Consumers are moving up in the market.

“The state of our industry is good and there are definite signs that it will get better over time,” said DiBuduo, citing a recent Gromberg Fredrickson Report. It reports:

Wine sales from the first four months of 2004 are up.

After increased sales of 5 to 6 percent over the past two years, we are currently experiencing another 3 percent on a very solid base.

The strength of the dollar is helping California wine sales in both exports and putting additional pressure on imports.

The 2001 and 2002 California red wines are exceptional and should be receiving good reviews and sales.

DiBuduo said non-bearing acres as well as increase in wine sales are both in single digit numbers. “This means we are heading towards balance,” he said.

“Obviously, this is a year to rejoice. The fat lady is starting to sing,” said DiBuduo. The noise is not deafening yet, warns the Allied president because there remain critical issues for 2004.

Growers must continue to work on the supply/demand curve of vineyards, production and wine sales, said DiBuduo.

“We must plan for the future, realizing that 100,000 acres of vineyards have been removed and they won't all go to almonds.” And probably the biggest challenge of all, “How do we better plan our industry needs and work with growers not to overplant again?”